Saturday, November 9, 2013

Charlie Munger on opportunity cost

Via the Santangel’s Review transcript of Charlie Munger at Harvard-Westlake (January 2010):
Berkshire Hathaway is constantly kicking off ideas in about two seconds flat. We know we’ve got opportunity X, which is better than the new opportunity. Why do we want to waste two seconds thinking about the new opportunity? Many of you come from places that don’t do that. You’ve got to have one horse, one rabbit, one something or rather, and that rabbit is going to be thinking about something which would be ruled out immediately by an opportunity cost available generally to the place – but, it’s a different department. You have to be diversified and so on and so on. It’s easy to drift into this idea that opportunities don’t matter, you’ve got so many different ways of doing things that are better. It isn’t better.
The right way to make decisions in practical life is based on your opportunity cost. When you get married, you have to choose the best [spouse] you can find that will have you. The rest of life is the same damn way.